Forex Trading today…frame of reference

Wednesday, March 18th, 2009 at
9:04 AM

There are times when I wish I didn’t have to sleep. I know this is true for everyone at some time or the other, but that doesn’t make me feel any better about it.

It’s like this – when there’s a Global economic upheaval in play (that would be now), it gets harder for forex traders to predict medium to long term direction of a currency pair. So, if you’re the sort of person who trades the daily charts, and stays in a trade for a day or three, then you would have trouble in this market. Take the pairs that the dollar is quoted against e.g. EUR/USD, AUD/USD; we have one day up, when the Equity markets go up, then back down when the markets go down.

The end result is that some forex traders shrink their frame of reference i.e. trade a lower time frame…or at least refer to it more. That might mean going down to 4-Hour and 1-Hour charts. There have been periods in these last months when this was the only way to get any real action in trading Forex. Of course, there is risk with this approach. It’s not really the sort of thing someone learning forex trading might do. However, once you’ve got some experience, it should be fine. It might not be worth the trouble for Forex traders with a lot of dough, but smaller account holders might be able to get a little something. The key is not to devolve into a Day trader, unless that is your area of expertise. Otherwise, it would be a good way to lose all your money.

To my point of being an insomniac…it should be a good way of trying to make some money in this climate…watching the news and charts 24-7 during the Asian session. A lot of the action happens then, when everyone is asleep in the US. Economic news being one of the biggest market movers now, one can get a good idea of market reactions to announcements in the Asian Session and potential direction of currency pairs heading into other sessions etc. Unfortunately, this would take away from the whole “only needing to check your charts for an hour in the evenings”. Plus it would be bad for my heart…and social life.

Sometimes patience is the only way to survive as a trader. No rash decisions. Stick to the strategy. Must avoid coffee…